Wednesday, March 31, 2010

Gold is no longer held captive by a fixed parity with the dollar. Today it is trapped politically in parity with a price discovery futures market leveraged at 100:1. But free gold is where we are heading, without a doubt. It is where monetary evolution is taking us. It is where debt evolution is taking us. It is where global political evolution is taking us. It is both a market process and a political process, global in scale. And we ask, "how will freegold materialize?" Ask how, not when.

As for when, I already have my answer. It is materializing now, right before my eyes.

Something important has changed. Can you feel it? It started about 12 months ago and has changed more in the last month alone than it did in the previous 12 months, and more in the previous 12 months than in the past 12 years.

Can you figure out what it is?

GO GATA!

Here are two important interviews from Eric King and King World News. The first interview is with Adrian Douglas of GATA and Andrew Maguire, The Whistleblower. And the second interview is with Bill Murphy, Chris Powell and Adrian Douglas of GATA.

Adrian Douglas: ...then I said "this is a Ponzi scheme", selling several times the amount of gold that they actually have...and then at that point, as you say, the oxygen went out of the room, and there was quiet for eight seconds.

I thought that was going to be it, that it would be swept under the lumpy carpet at that point...

But then, amazingly, Jeff Christian of the CPM Group who was coming in by satellite communication said that the previous speaker was absolutely correct, that it was paper hedging paper. You know, so this was an amazing admission.

And he went on several times while he was speaking and reconfirmed it in several different ways. So it wasn't that he just made a mistake, or said something incorrectly. He reconfirmed it several times.

And as Chris pointed out, he actually told us that the CFTC and CPM Group use the term "physical market" in a very loose way. And he said it actually means all the paper and the physical metal is when they refer to the physical market.

And then he gave us the bombshell that it's actually 100 to 1. That they sell 100 times more gold than they actually have as physical metal.

Eric King: Bill, let me ask you, because you were there with Adrian, obviously, at the CFTC meeting... were you shocked when Christian confirmed that?

Bill Murphy: Fell off my chair. Because Adrian's the one who's been saying this for a long time, and I was concerned that well, you know the London Bullion dealers, which is very [?] especially in a public forum. It's not because I didn't believe Adrian, it's just that... way above my paygrade, and I have no way of confirming that, and Adrian and I used to talk about 50 times... and then this goofball comes out and makes our case, and... except that Adrian's too conservative!

And he's supposed to be... his business is dealing with the dealer community! So, they gave the whole joint away. And he gave GATA more credibility than you can imagine!

It's just... I sat there with my mouth open.

Eric King: Chris, let me ask you as you watched this unfold. You've seen the tapes. You know all about this. Is part of it, maybe, that he just didn't know who Adrian Douglas was? And he was giving a tip of the hat to GATA. Can you help me on that?

Chris Powell: I don't know what was going through his head. I know that he has spoken at conferences where GATA has had speakers. So he is certainly aware of our work. I don't think he's been an admirer of our work in any way. But, you know, he was speaking at a public hearing before a United States government agency and you know, and like many people, he felt obliged to tell the truth, and maybe he felt that, well, this is no big deal because this is how the situation has been for many years.

The situation in the futures market... the overwhelming of the real physical market by paper is not peculiar to gold. It is the situation, really, in many futures markets, though perhaps not as much as in gold and silver.

The British economist Peter Warburton wrote, really, the original paper on this as far as I can determine, in 2001. He perceived that governments were encouraging investment banks to get into derivatives because derivatives were proving to be a wonderful way of diverting monetary inflation out of real things. And out of things whose increase in price would show up in consumer price indexes... and into mere financial instruments.

It was even mentioned by other witnesses at the CFTC hearing that this was a wonderful thing. Because if people were trying to hedge their currency holdings by buying real things, and real things were actually taken out of the market and put into storage, we'd have all these price increases in real things.

So the futures markets, it was pretty much admitted at the CFTC's hearing last week, are pretty much designed and intended to mask inflation. And to prevent people from actually hedging their currency exposure by buying real things.

The futures markets are an act of fraud!

Bill Murphy: Eric, I can tell you this for a fact, having been around Jeff Christian a lot... he loathes GATA! He has no idea what he was saying... how it was a bonanza for us. I mean, he's one of our biggest critics...

FOA

FOA (10/9/01; 10:05:48MT - usagold.com msg#117)

Lost in all the confusion is the distinction between investing in the price of gold and investing in gold itself. Perhaps 90% of all the investing in today's worldwide, dollar settled, gold market is done in this first way mentioned. Yes, the market is structured, contractually, to settle in gold. However, in practice, in norm, and in past legal precedent, it is accepted that paper gold trading is meant to only capture the price movements in gold while ceding, what could be, controlling physical trades and their price setting function to other market areas.

Obviously, this is the way it all started, years ago, with the physical trading and its fundamentals dominating the lesser paper trading. But the market evolved with the paper contractual trading becoming 100 or more times the size of the physical side. But everyone already knows all this, right?

What doesn't seem to be obvious is the "why" the paper market grew so large. It grew to dominate because world wide dollar expansion reached its "non hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.

In that truth, these paper gold positions act like FDIC insurance at our banks.

FOA (05/06/00; 16:45:21MT - usagold.com msg#20)For Your Eyes Only!

By holding physical gold you are owning a super leveraged "derivative" that will be exchangeable against the value of real things at a par level lost to the minds of most investors. Today, physical gold purchased in dollar values is discounting its worth by perhaps 100 times. For us PGAs (physical gold advocates), that is a leverage worth "playing the physical game for"! (smile)

As the only real wealth money this earth has ever had, it's unthinkable what value physical gold would have had to attain to denominate our created holdings. This is where so many "gold advocates" completely sell themselves short in projecting gold's future price. They try to somehow reconcile gold's value with its cost of production. In fact, once man's drive to attach his official currency / fiat money to gold is broken (as it is about to be), all the gold "IN" the earth today could not represent human created things at 10 times its current price! Throw in the fact that the earth will not give up all its gold any time soon, present world gold holdings in reserve currency today must rise in value at least 100 times to match what assets now exist. On top of that add in the fact that dollar gold will go sky high just to equal past dollar creation (as the dollar fails) and one can see where physical gold is "the play" in modern times. Forget stocks, business valuations, land or currencies: physical gold is the wealth for the next generation.

Literally at the crack of London dawn on January 30, 1997, the London Financial Times printed the following:

Gold global market revealed

THURSDAY JANUARY 30 1997

By Kenneth Gooding, Mining Correspondent

Deals involving about 30 million troy ounces, or 930 tonnes, of gold valued at more than $10 billion are cleared every working day in London, the international settlement centre for gold bullion.

This is the first authoritative indication of the size of the global gold market, and was revealed yesterday by the London Bullion Market Association.

With the blessing of the Bank of England, the association overturned years of tradition and secrecy to provide statistics illustrating the size and depth of the London market.

The volume of gold cleared every day in London represented nearly twice the production from South African mines in a year, Mr. Alan Baker, chairman of the association, pointed out.

It was also equivalent to the amount of gold held in the reserves of European Union central banks.

The size of the gold market will surprise many observers, but traders insisted the association's statistics were only part of the picture because matched orders are cleared without appearing in the statistics. Mr. Jeffrey Rhodes, of Standard Bank, London, said the 30m ounces should be "multiplied by three, and possibly five, to give the full scope of the global market".

Mr. Baker said the association would produce average daily clearance figures every month. "They will provide a useful benchmark for comparison and analysis of trends in the volume of the global bullion business," he predicted.

He denied suggestions that the move might drive business away from London by upsetting clients who preferred secrecy. "These figures do not in any way affect the confidentiality of the market. While discretion and integrity will always be bywords in the London bullion market, the LBMA is nevertheless conscious of the general call for greater transparency in markets.

"The statistics demonstrate the prominence of London in the world of bullion, something we have long been aware of but which until now has been difficult to demonstrate with statistics."

LBMA members were divided over the move. One said he was puzzled. "What will people make of it?" Another said the exercise was "futile" because it did not give a complete picture of bullion market activity.

But Standard Bank's Mr. Rhodes suggested the statistics would "become the key indicator in the world of gold, providing the numbers by which the market can be monitored".

Mr. Martin Stokes, vice-chairman of the association, said: "This shows we have a serious market with a lot of depth and deserving of more attention." The statistics showed, for example, that the 300 tonnes of gold sold recently by the Dutch central bank - a disposal that badly affected bullion market sentiment - was not a large amount by the market's standards. The association was "making a bid to attract investors' interest".

The association also gave details yesterday about the silver market. Roughly 250 million ounces of silver valued at more than $1 billion are cleared daily in London.

It also published the results of a Bank of England survey of turnover that the 14 market-making members of the LBMA in the London bullion market conducted in May last year. This showed about 7 million ounces of gold, worth nearly $3 billion, was traded daily by these market-makers.

Was the news a bureaucratic slip of utmost discreet information - indeed top secret data - or was it a well-timed and methodically planned leak to the press. Or perhaps it was the "whistle-blowing" of an irate employee, who was passed over for promotion? Who really knows? In any case we will provide all the details surrounding this monumental announcement... and allow the reader to draw his own conclusions.

This writer will present the entire situation via a chronicle of all the news publications about the subject, providing dates sources and authors - where possible. Nearly all available information was researched from Internet sources. Most comments are verbatim from respective authors.

To my knowledge it was an esoteric select few at the Kitco Gold Chat group, who really zeroed in on the draconian significance of the news.

Writer's comment: In light of these startling revelations, various observations may be gleaned from this publication by the London Financial Times.

1. In view of the humongous daily trading volume of gold by the LBMA, annual supply/demand dynamics may have little to NO INFLUENCE on the long-term price of the noble metal - albeit can cause short-term ripples one way or the other.

2. The formidable volume of daily trading strongly resembles that of currency trading -- indeed many world experts staunchly proclaim gold to be the universal currency... and history undeniably supports this assertion.

3. Fear of Central Bank sales of gold may be totally exaggerated - and may really have only a minuscule and temporary impact on gold prices.

4. The LBMA is a highly liquid gold environment, conducive for speculative trading - ESPECIALLY NOW THAT THE 'CAT IS OUT OF THE BAG.' Could this be the ulterior motive for breaking the secrecy code of ALMOST TWO CENTURIES?????????????

5. At the current daily trading rate, more than 100 TIMES THE ANNUAL WORLD'S GOLD PRODUCTION RATE IS TRADED ANNUALLY in the LBMA!!! Other than currencies, can anyone mention any commodity experiencing yearly trading volume of 100 times its annual production?! ANYONE?! Does this not pique your curiosity and question the reason or purpose of all this gold trading?!

We'll know later - meanwhile we've now got a glimpse of the sunlight outside ... the exit is near! -Orpailleur (...from Part 2)

Volume: COMEX is IRRELEVANT!The LBMA moves 60 TIMES THE VOLUME!

THEY (whoever they are) say that gold's downtrend was catalyzed by the Dutch CB sale of 300 tons of their gold last year, and further stimulated by further CB rumors of more sales. Holland's measly 300 tons (for 1996) is chicken feed alongside the WORLD gold volume at 3,720 tons PER DAY!

Anyway, it appears that the Euro CB's have banned the selling of their gold to meet the EURO monetary requirements.

??Consider this....Gold prices have dropped roughly 13% in the last 9 months....and daily gold volume on the LBMA has more than tripled in volume in the same period. It appears that, when gold is used as a currency (and not a store of value) it is not important what LEVEL the monetary (i.e. gold price to the dollar ) unit has......only that it maintains a reasonable amount of its value in the short run; long enough to make your next transaction.

Remember, these huge volumes on the LBMAare NOT from hoarders....these are thenumbers of merchants using gold as aCURRENCY. Who says gold is not money?

??Consider this: Gold production to demand ratios are no longer important.........the LBMA moves the world's entire yearly production in ONE day.

Is all this a "power play" by the LBMA?? In light of the preceding paragraph.....what would YOU do in their shoes?? The LBMA press release undermines ALL CB's propaganda....they are bitter enemies........... but just don't know it YET. The LBMA is that infamous voice that first screamed in an audible tone the king has no clothes. Period.

The LBMA change to "transparency" is a definite power play. This could be their move to push gold into a de facto currency.

Even SCARIER.... (or maybe exciting?) is that if all U.S. money in circulation was re-monetized (backed by gold) once again......gold would be around $34,000 an ounce! (Gee...did I really say that? There's gonna be hell to pay tomorrow....Maybe I better just hide for a few days)

It is interesting to speculate who exactly is on the other side of the trades the silly shorts and hedgers are making. John N's comment about rickety trucks going along the silk road may be smack on the money. Doom on them all if someone wants physical delivery of the gold they bought from the shorts..... (...from Part 3)

This 'smokescreen' from the LMBA has obscured what may really be going on now. I can not believe that the amount of bullion changing hands is of this magnitude without price movement. Rather I think you should pay very close attention to the wording of their statements. They say that 'deals' for that amount are transacted on a daily basis, not that actual bullion sales occurred.

No my friends, I think the cupboard is BAREand we will soon see the results!

As to why the COMEX seemingly has such a large influence on price when considering its relative size to the LBMA, I suppose it is not unlike many other markets which are influenced by the futures markets. A price change, owing to the size and nature of trading would seem to be more easily accomplished on the futures market as opposed to the OTC market. But it may also be because a lot of the trading on the LBMA is done independent of price as above reasoned. In any event, a price change induced by the futures market should hold only if traders on the LBMA accept it, and that is based on the above cumulative trading considerations and others.

The above collage is based primarily on supposition, many parts of which could be in error. Your comments are welcomed, as well as others on this forum who are more knowledgeable. (...from Part 4)

Internet Commentary #26 -

Posted on the Internet September 14, 1997 by "ANOTHER"

(an answer?):

This could be an answer directed to the "Red Baron"?

The CBs are becoming "primary suppliers" to the gold market. Understand that they are not doing this because they want to, they have to. The words are spoken to show a need to raise capital but we knew that was a screen from long ago. You will find the answer to the LBMA problem if you follow a route that connects South Africa, The middle east, India and then into Asia!

Remember this;the western world uses paper as a real value, but oil and gold will never flow in the same direction. Big Trader (...from Part 5)

Ref:"In other words, the current price of gold means that you are buying a slice of the world’s gold supply with a proportionately smaller slice of the world’s money. You can currently buy x% of the world’s gold with y% of the world’s money, where x is much bigger than y. When gold will become the unit of account of the world’s wealth, you will find yourself able to claim a much bigger slice of that wealth than you would have been able to do with fiat money before the collapse."

This means that CBs and gold-clearinghouse BIS must attach a much higher VALUE to the gold they exchange (redistribute) than the public (visible) goldprice(s).

Note the difference between Value and price. The price is for bookkeeping purposes. The Value is for wealth reserve purposes.

That's why a private person cannot buy goldmetal directly from any CB (or BIS/IMF) ! We are not allowed to know how CB gold " flows " (and is valued in the inner circle). We have no idea how bullion banks intermediaries let goldmetal circulate from goldmine to state and private entities.

We are not allowed to know how the CB/IMF gold auctions really happen. How can we possibly verify the goldprices that are publicised ? Who are the receivers of the WAG gold redistribution ?

So much CB gold-Action and so little transparency. WHY !?Because of Big difference between price and Value !?

to be continued....

Adrian Douglas

Adrian Douglas: "I think what will come out of this is that people who want to be owners of gold and silver will realize that they have to look very carefully at their investments and make sure that they do have actual physical gold and silver in their possession. And, as Chris pointed out, the only real way to do that is to take possession yourself."

Monday, March 29, 2010

FOFOA was recently contacted by a whistleblower who works at the IMF. He has just sent us this video reportedly of Eric Sprott at the IMF "gold window" trying to buy gold. He informs us that the IMF code-word for physical gold is "cheddar"...

Friday, March 26, 2010

Last night, after returning from the CFTC, GATA released these explosive emails detailing the ongoing manipulation in the silver (and gold) market, by JPMorgan Chase.

To me, this feels like finally seeing the Grand Canyon, after years of only hearing about it. You hear about how big it is, and you truly believe it is big. But until you actually see it, until you lay your eyes on the detail of the landscape and on the sheer depth and size of the canyon, you never really know.

On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

On February 3 Maguire gave two days' warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC's Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

It would not be possible to predict such a market move unless the market was manipulated.

In an e-mail on February 5 Maguire wrote: "It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue."

Expiry of the COMEX April call options is tomorrow, March 26. There was large open interest in strikes from $1,100 to $1,150 in gold. As always happens month after month, HSBC and JPM sell short in large quantities to overwhelm all bids and make unsuspecting option holders lose their money. As predicted by GATA, the manipulation started on March 19, when gold was trading at $1,126. Last night it traded at $1,085.

This is how much the gold cartel fears the CFTC's enforcement division. They thumb their noses at you because in more than a decade of complaints and 18 months of a silver market manipulation investigation nothing has been done to stop them. And this is why JPM's cocky and arrogant traders in London are able to brag that they manipulate the market.

This is an outrage and we are making available to the press the e-mails from Maguire wherein he warns of a manipulative event.

Additionally Maguire informed us that he has tape recordings of his telephone communications with the CFTC, which we are taking the appropriate legal steps to acquire.

I thought you might be interested in looking into the silver trading today. It was a good example of how a single seller, when they hold such a concentrated position in the very small silver market, can instigate a selloff at will.

These events trade to a regular pattern and we see orchestrated selling occur 100% of the time at options expiry, contract rollover, non-farm payrolls (no matter if the news is bullish or bearish), and in a lesser way at the daily silver fix. I have attached a small presentation to illustrate some of these events. I have included gold, as the same traders to a lesser extent hold a controlling position there too.

Please ignore the last few slides as they were part of a training session I was holding for new traders.

I brought to your attention during our meeting how we traders look for the "signals" they (JPMorgan) send just prior to a big move. I saw the first signals early in Asia in thin volume. As traders we profited from this information but that is not the point as I do not like to operate in a rigged market and what is in reality a crime in progress.

As an example, if you look at the trades just before the pit open today you will see around 1,500 contracts sell all at once where the bids were tiny by comparison in the fives and tens. This has the immediate effect of gaining $2,500 per contract on the short positions against the long holders, who lost that in moments and likely were stopped out. Perhaps look for yourselves into who was behind the trades at that time and note that within that 10-minute period 2,800 contracts hit all the bids to overcome them. This is hardly how a normal trader gets the best price when selling a commodity. Note silver instigated a rapid move lower in both precious metals.

This kind of trading can occur only when a market is being controlled by a single trading entity.

I have a lot of captured data illustrating just about every price takedown since JPMorgan took over the Bear Stearns short silver position.

I am sure you are in a better position to look into the exact details.

It is my wish just to bring more information to your attention to assist you in putting a stop to this criminal activity.

Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.

I sent you a slide of a couple of past examples of just how this will play out.

Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.

Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.

Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be "invited" on board, which will further add downward pressure.

The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?

Only if a market is manipulated could this possibly occur.

I would ask you watch the "market depth" live as this event occurs and tag who instigates the move. This would surly help you to pose questions to the parties involved.

This kind of "not-for-profit selling" will end badly and risks the integrity of the COMEX and OTC markets.

I am aware that physical buyers in large size are awaiting this event to scoop up as much "discounted" gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.

Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk.

I leave this with you, but if you need anything from me that might help you in your investigation I would be pleased to help.

If you get this in a timely manner, with silver at 15.330 post data, I would suggest you look at who is adding short contracts in the silver contract while gold still rises after NFP data. It is undoubtedly the concentrated short who has "walked silver down" since Wednesday, putting large blocks in the way of bids. This is clear manipulation as the long holders who have been liquidated are matched by new short selling as open interest is rising during the decline.

There should be no reason for this to be occurring other than controlling silver's rise. There is an intent to drive silver through the 15 level stops before buying them back after flushing out the long holders.

A final e-mail to confirm that the silver manipulation was a great success and played out EXACTLY to plan as predicted yesterday. How would this be possible if the silver market was not in the full control of the parties we discussed in our phone interview? I have honored my commitment not to publicize our discussions.

I hope you took note of how and who added the short sales (I certainly have a copy) and I am certain you will find it is the same concentrated shorts who have been in full control since JPM took over the Bear Stearns position.

It is common knowledge here in London among the metals traders that it is JPM's intent to flush out and cover as many shorts as possible prior to any discussion in March about position limits. I feel sorry for all those not in this loop. A serious amount of money was made and lost today and in my opinion as a result of the CFTC's allowing by your own definition an illegal concentrated and manipulative position to continue.

Bart, you made reference to it at the energy meeting. Even if the level is in dispute, what is not disputed is that it exists. Surely some discussions should have taken place between the parties by now. Obviously they feel they can act with impunity.

Now that gold is undergoing short covering, please look at market depth right now in silver and evidence the large selling blocks in a thin market being put in the way of silver regaining the technical 15 level, which would cause a short covering rally and new longs being instigated. This is resulting in the gold-silver ratio being stretched to ridiculous levels.

I hope this day has given you an example of how silver is "managed" and gives you something more to work with.

If this was long manipulation in, say, the energy market, the shoe would be on the other foot, I suspect.

I hadn't received any acknowledgement from you regarding the series of e-mails sent by me last week warning you of the planned market manipulation that would occur in silver and gold a full two days prior to the non-farm payrolls data release.

My objective was to give you something in advance to watch, log, and follow up in your market manipulation investigation.

You will note that the huge footprints left by the two concentrated large shorts were obvious and easily identifiable. You have the data.

The signals I identified ahead of the intended short selling event were clear.

The "live" action I sent you 41 minutes after the trigger event predicting the next imminent move also played out within minutes and exactly as I outlined.

Surely you must at least be somewhat mystified that a market move could be forecast with such accuracy if it was free trading.

All you have to do is identify the large seller and if it is the concentrated short shown in the bank participation report, bring them to task for market manipulation.

I have honored my commitment to assist you and keep any information we discuss private,however if you are going to ignore my information I will deem that commitment to have expired.

All I ask is that you acknowledge receipt of my information. The rest I leave in your good hands.

1) The plug seems to have been pulled on the CFTC's Internet video feed just as GATA Chairman Bill Murphy was called to speak. (The audio feed on the telephone conference call was not interrupted.) Was it just technical inadvertence? An urgent test of the Emergency Alert System? Or something more sinister? Of course we hope it was the latter as we await an explanation from the CFTC...

Tuesday, March 23, 2010

I was asked in the comments section [1] to watch a video and to offer my thoughts when considering virtual currencies and freegold. Well, the video turned out to be quite good! [2] So here are my thoughts...

That was a great video! I finally watched the whole thing. Of course my thoughts are from a market perspective, and not from a NWO "oh noes, they is gonna control us and enslave us fohevah" perspective. [3] I hope that's not what you were hoping for. (And I don't think it was ;)

Anyway, he talked about the divergence of technologies, and I think it applies to the virtual monies they create as well. Yes, technologies diverge and diverge, branching out like he says, but then a lot of branches die off and only the strong survive. Only the most credible!

And in the virtual money world, virtual money must be backed up by a credible company, that will back up your money, that will sell you a real stuffed animal (or whatever) for your points. And without physical backing of any kind, what can make it credible?

Well, we already have virtual money. We have bank credits. And they are backed by certain institutions that are credible because they have the backing of being part of the Federal Reserve system, which has the backing of the Fed, which can legally print dollar bills. So credibility traces back down the tree to its originating branch of credibility.

But today, the ultimate backing we have does not mean any thing of real value is exchanged at the source. Today, what makes institutions credible is how they go about DEFENDING the value of your virtual bucks. Because today, you cannot get anything from the institutions (like a stuffed animal or something), but you get stuff from everyone else who trusts and uses those bucks because the institution DEFENDS their usage value, their short term purchasing power stability!

Now think of the Fed and the ECB as diverging branches, one of which will eventually die like the Game Cube. They each have their offspring of virtual currency circulating out there in neverneverland. And none of it is backed by the exchange of ANYTHING from the source. It is only backed by the DEFENSE OF USE VALUE at the source.

The ECB has set up gold in its forex reserves. [4] That means that it plans to use gold to DEFEND the value of a euro at some point. That's what forex reserves are for. The Fed uses other means to "defend" the dollar. The Fed actually prints MORE dollars to buy debt outright to force down interest rates to fantasy levels to make the dollar appear strong. So it debases the dollar outright in order to have some dollars to trick the barometer. That's how the Fed defends the dollar.

Eventually the ECB plans to use its gold reserves to manage the value of the Euro. Not to exchange euros for gold, but to use the gold to manage the euro, manipulate it if you will. But the big difference is that it will not start doing this until it is competing in a physical-only marketplace for gold. So in a way, even though it will be manipulation from TPTB, it will be fair manipulation! It will be "hard trading" with "hard opinions" available to everyone. [5]

The ECB will print money and buy more gold into the reserves if it wants to weaken the euro (raise the price of gold and debase the currency at the same time). And it will sell gold into the market if it wants to strengthen the euro (lower the price of gold and lower the money in circulation by taking some in). Of course gold will be at about 50,000 euros per ounce before this even starts.

This is how "forex" gold reserves are much more powerful than the gold backing the dollar once had. [6] They require less gold, they never run out, and they don't require the currency to compete in an unfair way with gold. And they can be managed at one central location yet their affect will be felt wherever virtual euros exist. Under the dollar's gold standard the Treasury had to restrict the entities that could come to the gold window.

Under freegold, everyone in the world can come to the gold window! Everyone that uses your "virtual euros" has the confidence that you are DEFENDING their value against the most versatile real world physical trading thing; gold. And also that you are allowing gold to float freely, so that anywhere in the world, they will be able to buy physical gold with your euros. They are perfectly convertible at all times and places, because the ultimate institution backing them makes sure they are credible against gold, and that there will never be a physical shortage of gold priced in euros.

That's the plan they came up with. And you can apply the credibility test to any competing virtual point system by tracing it back to the credibility of its ultimate defender. And that's my take on your video.

It is often repeated that our markets are driven by supply and demand. In fact, supply and demand is probably the most closely watched fundamental of the market callers. They look for various signals that demand is rising, or supply is falling. Perhaps they are thinking too hard in a very soft world. Or could it be the other way around?

When we think about supply and demand, it is helpful to think of an ancient barter world, modern paper trading tends to muck it up a bit. So think about a supply of chickens at a Medieval fair. Let's say there are 10 chickens cooped up in a booth, with several buyers bidding for the chickens with their various goods. The first bidder take two chickens for the price of two bushels of apples. He hands over his apples and walks away with the two chickens.

Now, the rest of the bidders are faced with the hard reality that there are only 8 chickens left where once there were 10. This is called "hard trading" and the bidders are able to form "hard opinions" about the real supply and demand in front of them.

Next let's imagine that the first bidder only had to put up 5 apples as margin and then wait until the end of the fair to decide what he wanted to do with his purchase. How would this affect the rest of the bidding? Now the other bidders must make value assessments based on "soft opinions" relying on conjecture like "that first bidder rarely takes delivery of his chickens, he's just in it for the quick apple." This is soft trading.

Soft trading tends to draw in a lot of bidders (traders) who are willing to put down a margin requirement in the hope of making a small profit at the end of the fair. The seller of the chickens may have 30 different buyers for his 10 chickens, each putting down 5 apples (or whatever their good is). At the end of the day, 5 buyers will go home with two chickens each, 10 buyers will receive their 5 apples back plus 3 more apples in profit, 15 buyers will lose their 5 apples, and the seller will end up with 10 bushels plus an extra 45 apples while the "price" of chickens actually falls! This is because the seller, who had only 10 chickens to sell, flooded the market with 60 "paper chickens" driving the price down and at the same time making himself an extra profit.

[6] 6/14/98 ANOTHER (THOUGHTS!)

"Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will, as Michael Kosares (USAGOLD) notes, be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold! In today's world, this will happen as a "strong Euro physical market" displaces and defaults "the old dollar settlement paper gold market"! The dollar will become"weak in gold"!"

Monday, March 22, 2010

Anyone who has read ANOTHER (THOUGHTS!) ("The Inside Story on the Gold-for-Oil Deal that could Rock the World's Financial Centers") and FOA ("Walking the Gold Trail Using the "Thoughts!" of ANOTHER") or has been following this blog should immediately recognize the significance of these two articles (written in 1981 and 1991 respectively) presented today by CoinLink. (Hat tip Sigo Plapal)

(This first article appeared on pages 2-5 of the September/October 1981 print edition of Saudi Aramco World. by Robert Obojski.)

The Coins that Weren’t

“In Saudi Arabia, gold coins have always been important in the monetary system. For years, in fact, paper money was unacceptable, and to pay royalties to the government, Aramco once flew kegs of both gold and silver coins to jiddah. In 1952, when the Saudi Arabian Monetary Agency (SAMA) was formed, the first coin issued was a Saudi sovereign – a gold coin equal in weight and value to the British sovereign – that was later demonetized and today sells for about $124.

To collectors, however, the most interesting Saudi gold coins weren’t coins at all; they were “gold discs” Similar to coins, they were minted by the Philadelphia Mint in the 1940’s for Aramco, and bore, on one side, the U.S. Eagle and the legend “U.S. Mint, Philadelphia, USA” and, on the other side, three lines on the fineness and weight. They looked like coins, they were used as coins, but, technically, they weren’t coins.

In the 1950’s, numismatists were puzzled by these “discs” until - in 1957 – the story emerged in The Numismatist. Aramco, required to pay royalties and other payments in gold to the Saudi government, could not obtain the gold at the monetary price fixed by the United States so the U.S. government specifically began to mint the “discs” – actually bullion in coin form for these payments. In 1945, for example, the mint turned out 91,210 large discs worth $20, and, in 1947, 121,364 small discs worth $5, according to The Numismatist.

Because most of the discs were melted down for bullion, or later redeemed for the Kingdom’s gold sovereigns, the discs are interesting additions to art collections. But care is necessary as counterfeits are common.”

(Then in 1991, the New York Times printed an article by Jed Stevenson on the “disks” in reference to several which were to be sold by Stacks in an upcoming auction in May of 1991.)

Gold coins made by the U.S. to help oil companies pay their debts to the Saudis.

Sometimes coins are minted for the strangest of reasons. Some Saudi Arabian bullion coins, several of which will be auctioned by Stack's early next month, are a prime example.

The coins were struck in Philadelphia by the United States Mint in 1945 and 1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four American oil companies. The company was obliged to pay the Saudi Government $3 million a year in oil royalties and its contract specified that the payment be made in gold.

The United States dollar at the time was governed by a gold standard that, at least officially, made the dollar worth one thirty-fifth of an ounce of gold. But the price of gold on the open market had skyrocketed during World War II.

For a time the Saudis accepted payment in United States currency, but by 1945 they were insisting that the payments in gold be resumed. Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words "U.S. Mint -- Philadelphia."

Aramco paid for the minting and the bullion. The coins were shipped off to Saudi Arabia.

These bullion coins weighed 493.1 grains, slightly more than a troy ounce, and were 91 2/3 percent gold and 8 1/3 percent copper. The fineness was that of the British sterling system then current in the Middle East. The United States standard was only 90 percent gold.

Although some Aramco employees reported seeing the coins in circulation in the late 1940's, even using them as poker chips, the coins were not widely circulated. Islamic law discourages images and most Saudi coins are adorned with only Arabic script as decoration. The eagle with its wings spread wide must have been a startling sight to Saudi Arabia's more orthodox Muslims.

But most of the coins disappeared for more temporal reasons. The bullion coins were crated and shipped to Bombay, where the $35-an-ounce American gold was sold for $70 an ounce. Most of the coins were melted into bars and later sold in Macao.

In 1947, Aramco contracted for 121,364 smaller bullion coins with the same design, but weighing just 123.27 grains. Those coins actually saw some popular use in Saudi Arabia and traded for about $12, or 40 silver Saudi riyals. But the popularity declined after Swiss and Lebanese counterfeiters began striking coins that were similar but less valuable.

In 1951, Saudi Arabia began minting its own gold coins and melted down most of the remaining small and large bullion coins from the United States Mint, restriking them as Saudi coins.

Today both sizes of the Aramco bullion coins are quite rare and many counterfeits are in circulation. The genuine large disks have fine lines in and around all the letters; the counterfeits have small dots. Counterfeit small disks often show a large indentation above the M in Mint.

Saturday, March 20, 2010

"Inflation is a man-made scourge, made possible by the fact that most men do not understand it. It is a crime committed on so large a scale that its size is its protection: the integrating capacity of the victims’ minds breaks down before the magnitude—and the seeming complexity—of the crime, which permits it to be committed openly, in public. For centuries, inflation has been wrecking one country after another, yet men learn nothing, offer no resistance, and perish—not like animals driven to slaughter, but worse: like animals stampeding in search of a butcher.

"If I told you that the precondition of inflation is psycho-epistemological—that inflation is hidden under the perceptual illusions created by broken conceptual links—you would not understand me. That is what I propose to explain and to prove."-Ayn Rand

In Ayn Rand's Egalitarianism and Inflation she demonstrates the consequences of the introduction of paper money into a thriving agrarian gold-based economy. And she shows how the resulting inflation actually destroys the real-world capital that had previously been accumulated by shifting society's focus from production to consumption.

"Now project what would happen to your community of a hundred hard-working, prosperous, forward-moving people, if one man were allowed to trade on your market, not by means of gold, but by means of paper—i.e., if he paid you, not with a material commodity, not with goods he had actually produced, but merely with a promissory note on his future production. This man takes your goods, but does not use them to support his own production; he does not produce at all—he merely consumes the goods. Then, he pays you higher prices for more goods—again in promissory notes—assuring you that he is your best customer, who expands your market.

"Then, one day, a struggling young farmer, who suffered from a bad flood, wants to buy some grain from you, but your price has risen and you haven’t much grain to spare, so he goes bankrupt. Then, the dairy farmer, to whom he owed money, raises the price of milk to make up for the loss—and the truck farmer, who needs the milk, gives up buying the eggs he had always bought—and the poultry farmer kills some of his chickens, which he can’t afford to feed—and the dairy farmer can’t afford the higher price of alfalfa, so he cancels his order to the blacksmith—and you want to buy the new plow you have been saving for, but the blacksmith has gone bankrupt. Then all of you present the promissory notes to your “best customer,” and you discover that they were promissory notes not on his future production, but on yours—only you have nothing left to produce with. Your land is there, your structures are there, but there is no food to sustain you through the coming winter, and no stock seed to plant.

"Would it make any difference if that community consisted of a thousand farmers? A hundred thousand? A million? The entire globe? No matter how widely you spread the blight, no matter what a variety of products and what an incalculable complexity of deals become involved, this, dear readers, is the cause, the pattern, and the outcome of inflation."

Indeed, this is a big problem. Wouldn't you agree? Perhaps she is right, we must return to gold money if we hope to save the Western world from its ultimate destruction. Maybe this is the only way. But what if returning to an economy based only on gold and silver coins in your pocket is a complete pipe dream? What if this will never happen? Is there no hope for our future?

Antithesis

Let's just try a little Thought experiment. Imagine Rand's community as described above. And imagine that one entrepreneurial spirit in that community started a gold coin dealership sometime after "best customer" showed up with his paper promissory notes. Now, since we are dealing on a much smaller size scale, we will speed up our time dimension as well. So in our imagined community let us say that confidence in "best customer's" notes disappears the second time he shows up with freshly printed paper. People still accept them in trade for goods, but they don't trust them enough to hang onto them for any length of time. They would rather exchange them for gold, the old currency used before.

So now all of a sudden our gold coin dealer's business takes off. Those market participants who are barely producing enough goods to sustain their daily existence will be spending the notes they receive on other goods right away. But eventually those notes will find their way to a super-producer, someone who is able to save some of his efforts for the future. And he will walk those notes over to our gold dealer.

Over the course of a few days all paper notes in circulation will flow to the gold dealer, and pretty soon his supply of gold coins will run low. He may try to give the notes back to "best customer" in exchange for some more gold for his business only to find that "best customer" has no gold, only more paper notes.

So our gold dealer's first response will be to raise the price of his remaining gold coins. And then, since gold coins are his stock in trade, he will have to venture out into the marketplace to replenish his inventory. He will have to bid gold out of the hands of the agrarian workers with more and more paper notes. And then he will have to sell those gold coins for even more than he bid for them.

Very quickly this will raise the price of gold coins when priced in "best customer's" paper notes. And agrarian traders coming to exchange their paper for gold will realize that the cost of gold is rising. And then they will have to charge more for their goods when paid with paper.

The end result of this little thought experiment is that on any given day the price of goods in paper notes will seem stable to the naked eye, but over time "best customer's" inflation will be absorbed into the price of gold and will not affect the savers or destroy their capital accumulation because they saved only gold.

"Best customer" will eventually have to bring wheelbarrows full of his notes just to buy one apple. This development will expose his scam to even the most retarded villagers, and he will ultimately lose his reputation as "best customer".

The moral of this little story is that there actually is hope because gold can absorb most if not all of the pain inflicted by inflation if it is allowed to do its job as a wealth reserve. It is all about how long you hang on to the paper. The longer you hold it the more you transfer the value of your own labor into the hands of "best customer".

Recall my triangle diagram of the three primary functions of money:

In Gold is Money - Part 3 I explained that the evolution of money is taking us to a place where these functions will be fulfilled by different mediums. The transactional or medium of exchange function will still be fiat currency, the very same that we know today. And the store of value will be physical gold, the store of value par excellence for the last 5,000 years or so. The unit of account for bookkeeping purposes will probably be split between the two depending on the time scale preference of the accountant.

You see, the ability to print transactional currency is a privilege that can be legislated. But having people choose to hold your currency for any length of time is an additional privilege that must be merited and earned.

And forcing people to hold your inflating currency longer than necessary for trade, because there is no viable alternative, is an exorbitant privilege. Gold can and will remove the exorbitant privilege from our monetary system when it is allowed to do its job as a wealth reserve.

How do I know this is coming? Because today the exorbitant privilege is almost completely claimed by the US Federal Government, and is paid for by the labor of the rest of the world. The USG is today's "best customer".

And the ability of the USG to eliminate the viable alternative of gold as a functioning store of value depends entirely on the continued acceptance of the dollar as the global reserve currency. Both this acceptance AND the control over gold's price have been waning lately. And today, it is only a matter of time until they are both gone forever.

Also, and this is very important, the rest of the world outside of the "exorbitant privilege club" that I like to call the $IMFS (dollar international monetary and financial system) has been preparing to support gold as THE store of value should the dollar fail. Sure there is a lot of talk about SDR's, new "monetary funds" and other forms of "new fiat", but all you have to do is look at the concrete preparations that have already been made if you want to see how things will actually play out.

Synthesis

Europe views its privilege and its debt differently than the US. The US will never give up its mountain of unfunded liabilities until it has printed its dollar into oblivion. Europe is different. The Eurozone members gave up their right to print to oblivion by joining the euro. And the euro only has one single mandate: low inflation!

Now we can argue until the cows come home whether or not ANYONE should have the privilege to print currency. The winner of that argument is probably no, that no one should. But the flaw in the argument under today's dangerous conditions is that people get caught up in what SHOULD happen and lose sight of what WILL actually happen.

Fiat currency, for all its flaws, has provided the flexibility and computer-age transaction ease and record-keeping that is valued by not only those few ego-maniacs that believe they can control everything, but also by business and productive enterprise. So it is not going away no matter how good the argument. But the worst of its flaws can, and will, be neutralized. And this is where (what I like to call) Freegold makes its debut.

Here is an important question: Is it theoretically possible for a fiat currency to devalue, or more precisely, to hyper-depreciate against only one single asset without affecting the price of a can of peas?

Of course it is! Just look at any number of investments that have appreciated quickly by an order of magnitude or two. Look at GOOG! Or how about AAPL? When an asset appreciates against a currency can we not also view it as the currency depreciating against that one asset? Or more precisely, can we not say that the asset was awaiting massive revaluation based on market recognition of its value?

Now, what if the revalued asset is gold, a monetary asset held by Central Banks? What could such a revaluation do to today's dynamics of national debt?

ECB v. FED

In many posts I have highlighted two important differences between the ECB and the US Federal Reserve. The first is the separation of currency creation from the control of a single sovereign government, or the elimination of "exorbitant privilege". And the second is the demonetization of gold making it a supporting reserve asset instead of a competing currency. The Fed views gold as a competing currency, which was clearly shown in Adrian Douglas' recent revelation titled: More Fed minutes document gold market manipulation (a must-read for anyone who is still reading my post).

The ECB, on the other hand, revalues all European gold reserves every three months to their market value, reflecting the very real rise in reserves. The Fed still has US gold booked at its 1973 price of $42.22 per ounce. The late Dr. Willem F. Duisenberg, first president of the ECB, articulated these differences in his acceptance speech when "the euro" won the Internationaler Karlspreis zu Aachen, also known as the International Charlemagne Prize:

"The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro."

The Karlspreis is one of the most prestigious European awards. It commemorates Charlemagne (Charles the Great; 742-814), King of the Franks, the founder of what became the Holy Roman Empire and, according to the City of Aachen where he is buried, the "Founder of Western Culture." To put this award in perspective, have a look at the company the euro is in, having been the only inanimate object to ever receive this award:

My point here is not to heap praise on anything, anyone, or any point of view. It is simply to show you how the euro is viewed by Europeans. When a country joins the euro it takes on all the importance of a marriage and then some. Divorce is not an option. As Jean-Claude Trichet said in a recent interview...

Le Point: Could a scenario be envisaged in which a country is no longer able to meet its obligations and leaves the euro area?

Jean-Claude Trichet: I have always said that I will not comment on absurd hypotheses. Joining the euro area is a major decision. It is not a membership that can be adapted to suit the circumstances. It is about sharing a common destiny with other countries.

For more on this please see my excerpt from Eric King's excellent interview with Jim Rickards transcribed in Greece is the Word.

And now let's take a look at a few more differences between the ECB and the Fed. I am not passing moral judgement on either institution, only practical judgement on their policies, foundational architecture and underlying monetary theory.

First we should start with their most basic motivation, their mandates. The Fed has two conflicting mandates legislated by Congress. The ECB only has one. The Fed's two mandates are price stability and full employment. The ECB's only mandate is price stability. A third, unofficial and unspoken mandate of the Fed is to guarantee the funding of the US Treasury to pay for its ever-growing deficit, but we'll leave that one alone for the moment.

Price stability is a monetary mandate requiring a strong, stable currency. Full employment is an economic mandate, and a poor one at that. According to the Fed's prevailing economic theory this mandate requires a weak currency. These are conflicting mandates, leaving the Fed to walk the proverbial tightrope.

But as it turns out, the ECB's one mandate is the one that is good for the savers and the capital accumulators. Which surprisingly enough is what will ultimately make for a strong economy. Mandating your money printer to create a strong economy through "full employment" is akin to taking anabolic steroids for a healthy, long life. Whereas focusing solely on keeping inflation under 2% builds the kind of confidence that draws in capital investment and ultimately creates a healthier economy, socialist politicians and taxes notwithstanding.

Okay, moving on. I'm just going to list out a bunch of differences here including the ones already mentioned:

12. ECB architecture is inspiring changes in other CBs and monetary unions. FED is not so inspiring.

Each one of these twelve differences is probably worthy of its own post from a Freegold perspective. But the point I am trying to make here is that the ECB has created a new product for Europe. It is 10 years old now. The FED's product, the dollar, and its offspring the $IMFS is now 97 years old. The ECB's innovative creation was the result of lessons learned living under the $IMFS for more than half a century. And the point is summed up most eloquently in Another's own words, written before the euro was even introduced:

"In the very same mindset that people buy the best value for the lowest price (Japanese cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal."

Just last week Trichet said, "We did not create the euro against the dollar, the euro is for Europe.”

The euro architects were not trying to force a reserve currency on the world. There is a big difference between creating a government product with sovereign-monopoly backing that everyone must use, and creating a product that the marketplace must freely choose. In this case, the marketplace consisted of sovereign nations that chose to give up the privilege of printing their own money in order to join in the benefits of the euro.

So what are those benefits?

Benefits of the Euro

In 2001 Robert Mundell wrote:

"The advent of the euro has demonstrated to one and all how successful a well-planned fixed exchange rate zone can be. After the 11 currencies of the zone were locked to the euro and to each other, even before the euro has been issued as a paper currency or a coin, speculative capital movements between the lira and the mark, the franc and the peseta, and all the other currencies became a thing of the past. It ended uncertainty over exchange rates and destabilizing capital movements. The 11 countries of the euro zone are now getting a better monetary policy than they ever had before. The creation of the euro zone therefore suggests a viable approach to the formation of other currency areas when prospective members can agree on a common inflation rate and a coordinated monetary policy."

Each country is getting a better monetary policy. And this highlights one of the lessons the euro architects learned after 47 years of living under the Bretton Woods accord and the $IMFS. The euro does not do monetary financing of sovereign budgets. According to the Maastricht Treaty there can be no monetary financing of public entities. And it is the job of the ECB to protect the integrity of the currency only (low inflation), not the profligate ruling party of any member state.

Mundell continues:

"My own view about the politics of the euro is that it will provide a catalyst for increased political integration in Europe, which, after two centuries of a Franco-German rivalry that has periodically engulfed the entire world, is highly desirable."

Here is an important benefit: peace! I refer you back to the Jim Rickards interview mentioned earlier for more on this. And then more Mundell:

"I also believe that every country in the euro area is now getting a better money than they had before. First of all, the size of the euro area is vastly larger than the size of any of the national currency areas, and that affords to each country a better insulation against shocks. The gains in this respect vary in inverse proportion to the size of the country. The currencies of small countries can get blown out of the water by speculative attacks. Germany may gain less proportionately than the smaller countries, but the Germans now have, or will have when the transition is complete, a currency that is three times larger than the mark area alone.

...Apart from the United States, most if not all countries would benefit from being part of a larger currency area, for reasons of economies of scale, cushioning against shocks, and a better monetary policy. Most of the 175-odd currencies in the world should be classified as “junk” currencies, sources of instability rather than anchors of stability."

Better money! Yes, bigger is sometimes better. This is not to argue for a one world currency, but in some cases regional currencies can be better than the sum of their parts. Here is a list of the problems faced by more than 45 smaller currencies with reckless leaders and bad monetary policy. Of course size does not guarantee stability, as we will soon find out. Monetary policy, CB independence and systemic architecture are also important factors.

Mundell:

"Exchange rate changes can never be a substitute for the vast number of changes in individual prices that have to be made in an efficient market. But the possibility of exchange rate changes has nevertheless deflected the attention of policy makers from the vastly more important subject of flexibility in all individual markets. I believe that flexibility of individual prices will be fostered by the euro area..."

Think about this one in light of the ECB's transparent quarterly Mark to Market price policy for its gold reserves versus the US need to secretly control market prices through the opaque Fed, the secretive Exchange Stabilization Fund and the ghostly Working Group on Financial Markets.

"[A] country is better off with a national monetary policy [only] if the monetary policy is likely to be better than that in the rest of the world, as it could be if the rest of the world is unstable. Short of a monetary union with the euro and yen areas, the United States has no real alternative to inflation targeting and a flexible exchange rate."

Hmm... seems like a deep statement coming from the man some call The Father of the Euro. Moving on from 2001 to Jean-Claude Trichet just last week:

Jean-Claude Trichet: Like everyone else who shares the single currency, the Greek economy has – from the moment it joined the euro area – enjoyed a number of significant advantages in monetary terms. Being part of the euro area has strengthened the Greek economy. Thanks to the euro, it was no longer subject to exchange rate risk, it has access to an integrated economy comprising 330 million European citizens, and it has benefited from having a currency which inspires confidence and has therefore afforded Greece low medium and long-term market interest rates. Its external current account deficit has been financed by the very fact of belonging to the euro area. Of course, in exchange for these significant advantages, the rules of the Stability and Growth Pact must be fully respected.

Le Point: All the same, we have just found out that Greece cheated. It hid shameful secrets about its financial situation from its partners. How can we stop this happening again?

Jean-Claude Trichet: This situation is totally unacceptable. And it’s a major problem because all of the countries in the euro area are suffering as a result of this misconduct.

Now I would like to point out a key distinction here. In the first paragraph Trichet nicely sums up the benefits the euro has provided to Greece. But then comes the question of unsustainable Greek debt and even "cheating". Well, where did that come from? It came from the $IMFS!

Europe is now living under a new currency, but it is still functioning under the dollar's global financial system that encourages infinite debt accumulation, infinite growth of imbalances, and financial trickery to pretend the system is stable and extend its timeline.

All the benefits and architectural innovations of the ECB stand in place now as a kind of safety net for the Eurozone for whenever the $IMFS collapses under its own weight. And the signs of this happening sometime soon are ominous and many.

It is easy and convenient for the financial press to blame the Eurozone problems on the euro itself. But I am here to show you that they are actually caused by the dollar system, counterintuitive as that may seem.

Problems of the $IMFS

"[T]o what extent [does] financial innovation serve the real economy and to what extent [does] it only serves itself? At some point in our recent past, finance lost contact with its raison d'être. It ceased to be a source of services for the real economy and developed a life of its own. Finance became self-referential."-Remarks by Jean-Claude Trichet, President of the ECBat Stanford University, Stanford, California 12 March 2010

As every good bookie knows, whenever you can get groups of people on opposite sides, the real money is made in the middle. And the more people you can get in on the action, the bigger the profits and the biggest profits of all go to the middleman. This is Wall Street. This is the $IMFS in a nutshell.

In Greece is the Word I showed you how the entire purpose of the $IMFS is to act as a middleman between the debtors/consumers of the world and the savers, investors and producers:

Everyone is one of these two camps, the Debtors or the Savers. Even every entity when netted out falls into one of the camps. So if there are serious problems happening within the $IMFS it stands to reason that they could be viewed from slightly different perspectives depending on which camp you're in.

Now I'm sure I don't need to list out all of the problems within the $IMFS today. Most of you have spent the better part of the past 18 months reading endless opinions on this subject. So I am going to focus briefly on one small problem as viewed from each side.

On Tuesday Jim Sinclair and Marie McDonnell of Truth In Lending Audit & Recovery Services - Mortgage Fraud and Forensic Analysts reminded us of a very serious ongoing problem within the $IMFS:

Jim: Here is the top of the heap of strange goings on in finance.

How many of your mortgages have been securitized multiple times? What if your servicer folded? The real owner of the mortgage might just knock on your door demanding payment.

It has been held now by many recent court cases that only the party which made the loan has the right to foreclose.

How would you like to find out that even though you have paid your mortgage, the real party of interest says screw you, pay again or it’s foreclosure time!

Please, those of you with mortgages on your homes track down the real owner of your paper, and fast.

Marie: ...this is only the tip of the iceberg… not just for Lehman, but for the vast majority of Wall Street Investment Banks that securitized mortgage loans over the last decade.

I believe that Lehman-like balance sheet accounting fraud is inherent within the nature of the securitization process; that “true sales” never took place and the transfer of assets to and from the participants in the securitization paradigm were book-entry financing deals; that consideration was never paid by the participants; that the funding came from outside sources; that the complexity of the structure was designed to cloak money laundering; that the trusts never achieved their tax free REMIC status; and that loans were purposely designed to fail so that the participants in the securitization could control both the cash flow and the real estate assets arising from these mortgage transactions when the bubble inevitably burst.

If I am correct, this would have serious implications for consumers whose loans were securitized because the participants in the securitization would be unable to prove that they legally conveyed the loans into the trust fund. Essentially, U.S. Bank and Wells Fargo had this opportunity in the Massachusetts Land Court cases last year and they could not produce the evidence of ownership. They produced the Notes, but not the proof of how they purchased the loans from the originators. The evidence also showed conclusively that the mortgages were never assigned from party to party according to the Pooling and Servicing Agreement and into the trusts. This, in large part, is why Judge Long overturned two out of three foreclosures.

Much of the fraud is buried in the opaque OTC derivatives trading. I know I am preaching to the choir on this topic!

This is clearly a huge problem for the $IMFS. And as you can see from the above, Jim and Marie are addressing their warning to the debtors, those who borrowed money to buy a home. But this same problem has another perspective, that of the savers.

What do you hold in your 401K? What is your pension holding on your behalf? Do you own any "assets" that may have no legal claim to anything if examined in a court?

This problem runs very deep. Harley, one of Jim Sinclair's readers, writes in with this:

Hi Jim,

I recently initiated Identity Theft coverage and in the course of that work, I was asked to review my credit report. I discovered that my refinanced mortgage, paid in full in July 2005, has been retained as current and OPEN with a last payment of July 2005. The account is listed on the credit report as current, not paid and closed as were other previously listed mortgages. That mortgage was paid in full and closed (at least I thought it was closed) when I rolled into a new mortgage (refinance) in July 2005. All was done with the same financial institution (which closed and became Chase). The punch line is that the paid and supposedly closed mortgage is owned by TA DA: Fannie Mae. How many billions are being carried on the books that DO NOT EVEN EXIST? The plot thickens, the whole episode sickens.

And how many billions are in pension funds, trusts and 401K's that DO NOT EVEN EXIST? Okay, I think (hope?) we all get the point.

Unsustainable Deficits

The pressure on the $IMFS is building EVERYWHERE! From Greece to California, from the ECB to DC. And what exactly is all this pressure? It is unsustainable deficit spending... DEBT!

U.S. government's top economic policy makers acknowledged Tuesday that the country's fiscal policy is unsustainable.

And what is the ONLY solution to this? What is the pressure release valve? It is different depending on whether you are a sovereign net creditor/saver or if you are a sovereign debtor. For the creditor/savers the ONLY solution is CUT OFF THE CREDIT and thereby FORCE AUSTERITY. If you are a debtor, the ONLY solution is DEVALUE THE CURRENCY, or more precisely, ALLOW the currency to hyper-depreciate. Yes, default is an option, but not for a sovereign that prints its own money, and not for any too-big-to-fail entities under the umbrella of such a sovereign.

Greece is under the euro umbrella and California is under the US umbrella. Germany is a creditor/saver, and also under the euro umbrella. China is a creditor/saver not under either umbrella.

The US dollar MUST devalue (one way or another) against the entire physical world. Think about this. The euro, on the other hand, might just hyper-depreciate against only one specific asset. An asset that happens to also be a MONETARY asset held by its member debtors.

As I said in Call Me Contrarian... "Do I think this magnitude of a reset could happen overnight? Yes, I do. Why? Because that is the way you get the most "bang for your buck". Surprise is the order of the day! "Devaluations always happen by complete surprise as to exert maximum leverage effect."

My point here and in Call Me Contrarian is not to predict timing or to announce that something is imminent. It is simply to say that when it does happen, it will happen lightning fast.

Devaluations always happen by necessity. They can be triggered either intentionally internally, intentionally externally or unintentionally naturally. They happen because they are ultimately necessary to both parties and to nature itself. But the party that feels the pressure most, enough to trigger the devaluation first tends to profit the most from it.

To us mere observers, all we can do is to be 100% prepared every day until it happens, whether it takes one day or 12 years to arrive. And part of the point is that being 100% prepared has its own spoils, even if it takes years. But when it does happens, it will happen too fast to prepare any more.

I think a lot of people erroneously believe that because nothing catastrophic has happened in the past 18 months that all changes will come at us in slow motion. I think this is a dangerous belief to hold, especially if you act on it.

Defensive Options

"All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him."- Sun Tzu, The Art of War -

Things are not always as they seem. Let us now take a look at a couple goings-on in Europe that may seem on the surface to be $IMFS-positive, but may actually be the opposite once you scratch the surface.

Yes, Portugal is selling "buck bonds" through GS, seemingly invalidating the previous ban of GS from selling Eurobonds. And yes, selling bonds in a currency you cannot print or control is dangerous, especially for a profligate government.

But Portugal cannot print euros either. Portugal gave up the right to print currency when it joined the euro. So are these buck bonds really more dangerous for Portugal than eurobonds would be?

And the essence of this trade is short-selling the dollar and going long the euro. Portugal is borrowing dollars, selling them short, and then buying euros (which are what it actually needs).

In the process it is shoring up its own short-term financial problems at the expense of the dollar (shorting the buck) in an attempt to delay becoming the next Greece (perhaps buying time until the revaluation of its 382 tonnes of gold reserves), and possibly setting itself up to reap a big (Jubilee) windfall when the dollar collapses and the euro doesn't.

One could wonder, did Portugal have the ECB's blessing to do this special "deal with the devil", er, I mean Goldman Sachs? After all, Goldman recently told its clients to go long the euro.

EMF

On February 18, 2010, in a guest article published by The Economist, Daniel Gros of the Centre for European Policy Studies and Thomas Mayer of Deutsche Bank proposed the creation of a European Monetary Fund.

On March 9 this idea gained attention when the German magazine FOCUS ran a piece that said, "German finance minister to present fund proposals soon. The European Commission has said it supports creating a European Monetary Fund (EMF) to help eurozone countries facing balance-of-payments difficulties."

On March 12 Triche, in an interview from Stanford, California, "in response to a question on a proposed European monetary fund, said a proposal forwarded by German academics deserves an examination although he was non-committal in his support."

On March 14 Germany's Bundesbank said it "would oppose any government initiative to use its gold reserves as backing for a European Monetary Fund (EMF), a spokeswoman said."

Things are not always as they seem.

Remember the "nuclear option" discussed in Greece is the Word? As far as practical applications go, one could be forgiven for wondering if an EMF could be more of an EMP in practice.

Here are a few nagging questions I have about this EMF thingy.

Why discuss an EMF when the IMF is so eager to help? How would an EMF be different from the IMF? How would it NEED to be different from a practical standpoint? How could such a "gold-backed" EMF scheme work without revaluing gold to Freegold prices? And could the end result of such an EMF project actually be the balanced meritocracy of Freegold at the sovereign level that we are watching for?

The Bundesbank’s resistance or opposition to this scheme is well understandable from the perspective that its gold reserves provide a stabilizing force as the strongest component residing on the asset side of its balance sheet...

...That isn’t to say that a gold-holding EMF is an entirely bad idea, it’s just that its own gold reserves can’t be simply pirated from legitimate gold-holding entities through a paper-juggling enterprise. They must be obtained, if at all, through the open market. And who knows… at a sufficiently high (HIGH!!) gold price in the not-so-distant future, even the Bundesbank itself might be more cooperative on the point of dishoarding an acceptably small portion of its gold reserves for certain political objectives…

So, is the idea of an EMF a flattering copy of the $IMFS' IMF, or a nuclear $EMP?

Defensive Action

FOA (9/23/2000; 9:26:10MD - usagold.com msg#39)ONWARD!

"Go back and read the most recent speeches and comments by the ECB president, Mr. Duisenberg. Truly, the ECB is not interested in "crashing" the system, rather let's "transition" the system into a more fair order. If intervention is needed, it's needed to keep the American economy from failing too fast from the coming hyperinflation of its currency. If the ECB is worried about the "exchange rate" being too far out of whack, it is a worry about its effect in generating a dollar-system meltdown from deficit trade. Not a total failure of the Euro as so many report. When the time comes, and it will, the dollar will begin its fall away from its own past policy failure. Until that time, for the benefit of oil producers and many others, let's move as far down this Euro / gold trail as possible. Without a breakdown.

The hyperinflation of the dollar is already a done deal. It has been since the 90's at least. Massive quantities of perceived dollars already exist stored in debt held globally and inside the US. Europe knows this. They have known this was inevitable since at least the mid-90's when they changed plans and went with higher gold reserves for the new ECB. They have always been willing to wait for it to happen naturally, unless the EU itself faces an existential threat from debt brought on by the $IMFS. And in this case, I believe their only option is a targeted hyper-depreciation of the euro.

By "targeted", I mean that the euro devaluation would be targeted to go only into gold. Gold can absorb a devaluation if you do it carefully, and in turn devalue the debt without causing inflationary havoc.

Of course this would cause the hyper-depreciation of the dollar as well. Only the dollar's collapse would be against all of creation, not just one asset.

This is the risk that we all face today. The dollar is like a spring snow-pack high on the mountain that is still fighting gravity. It wouldn't take much more than a shout to bring it down. But then again, what have I said time and again? The dollar's specific value does not even matter in the context of its primary function. It only matters to those holding its debt as the store of their life's efforts.

What happens if the Euro project fails?

5/22/98 ANOTHER (THOUGHTS!)

If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You

6/4/98 ANOTHER ( THOUGHTS! )

The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.

But by 1980, Europe was working with the BIS to implement a new "reserve currency".

The European plan was to support the $IMFS at least until a new fiat "reserve" currency could be established, one large enough to absorb the shock of a failing reserve currency, to avoid being forced back 100 years into a physical gold-based economy which would have been very traumatic. This effort took 20 years from 1980.

Did the Euro have some challenges along the way? Yes indeed.

5/3/98 ANOTHER (THOUGHTS!)

The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so, from the dollar being made strong in gold. Gold priced in dollars at near production cost offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!

Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!

There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!

The politics of the ECB? It is as a "side show". We watch this new market, yes?

6/14/98 ANOTHER (THOUGHTS!)

"Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will, as Michael Kosares (USAGOLD) notes, be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold! In today's world, this will happen as a "strong Euro physical market" displaces and defaults "the old dollar settlement paper gold market"! The dollar will become"weak in gold"!"

The Yuan

The yuan will not be the next global reserve currency because it has not only NOT severed its link to the state, it is actually printed by Communists. Those who are predicting this are still viewing the world through $IMFS goggles that see the yuan currently undervalued. They think in dollar terms and conclude that whenever China finally agrees to let the yuan trade on foreign currency exchanges, they would like to buy it! Being undervalued (against other fiats only) they see the opportunity to make fiat profits when it rises. They view it as a "store of value par excellence" compared to other fiats.

Things are not always as they seem.

Conclusion

Freegold is our destination with or without the euro. Even on the outside chance that an SDR or a similar super-sovereign currency is accepted as the new global reserve currency, it would have to contain gold at Freegold valuations in order to be viable, accepted and trusted, in the same vein as Randy's comment about an EMF. So any way you cut it, the future comes to us with really high value gold by today's standards.

Be sure to get your share while we are still living on Fantasy Island.

Sincerely,FOFOA

Disclosure: No euros held, now or ever. No euro-denominated positions, now or ever. No particular love for the euro, only for fair trade, truth and transparency. Only traveled to Europe once, for two weeks.

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